FCA Liability Turns on Claimant's Intent, Supreme Court Rules

The U.S. Supreme Court has ruled that, for purposes of the False Claims Act, a request for payment made to a contractor rather than directly to the government would violate the law if the payee intends that the government pay the claim.

The ruling vacated a December 2006 decision by the 6th U.S. Circuit Court of Appeals in a suit over allegedly false claims made on contracts for Navy ship equipment.

The False Claims Act is the government's primary tool for fighting procurement fraud.

Plaintiffs Roger Sanders and Roger Thacker sued Allison Engine Co., General Motors Corp., General Tool Co. and Southern Ohio Fabricators in the U.S. District Court for the Southern District of Ohio.

They alleged that the defendants wrongfully submitted claims for payment because the ships' generator sets were not made in accordance with the terms of the Navy contract.

The defendants submitted the false claims to nonparty prime contractors Bath Iron Works and Ingalls Shipbuilding, the complaint said.

Former General Motors affiliate Allison Engine provided the generator sets to Bath and Ingalls, according to the suit. General Tool and Southern Ohio are Allison Engine subcontractors.

The defendants sought to dismiss the case, arguing that the FCA requires that a false claim be submitted directly to the government. As the prime contractors, Bath Iron Works and Ingalls are the only entities that technically could have submitted claims for payment to the Navy, the defendants argued.

Further, the plaintiffs did not show that the prime contractors or the other defendants submitted any claim, false or otherwise, directly to the government, the companies argued.

The trial court agreed and dismissed the suit in March 2005.

The 6th Circuit reversed.

The appellate panel said that for purposes of an FCA action, it is sufficient to show that a party intended to cause a private entity to pay a false claim using government money. It is not necessary to prove that a defendant intended the United States to pay a false claim, the appeals court said.

The FCA applies to any case in which the United States sustains a financial loss, regardless of whether the false claim actually is presented to the government itself, the panel held.

Here, a jury could have found in the plaintiffs' favor even though they lacked evidence of presentment to the government, it said. Thus, a jury should decide whether the defendants violated the FCA, the appeals court said.

The defendants asked the Supreme Court to review the case, and in October the high court agreed to hear the matter.

Writing for the unanimous court, Justice Samuel Alito Jr. said the 6th Circuit incorrectly interpreted the FCA.

The statute specifically requires that a defendant make a false statement "to get" a false or fraudulent claim paid by the United States, he said.

Having the United States pay a false claim is not the same as getting a claim paid using government funds, Justice Alito said. A defendant must intend that the government itself pay the claim, he said.

The 6th Circuit eliminated this element of intent and expanded the FCA beyond its goal of fighting fraud specifically against the government, according to the Supreme Court.

A false claim may include a request for payment made to a contractor rather than directly to the government if the defendant intends the claim to be paid by the United States and not some other entity, the court explained.

However, this does not mean that liability requires proof that a defendant's allegedly false claim was submitted directly to the government, Judge Alito noted.

A successful FCA plaintiff cannot merely show that a fraud scheme caused a private entity to make payment using money received from the United States, Justice Alito said. Rather a plaintiff must prove that the alleged conspirators intended to defraud the government, he said.

Though a plaintiff need not show that the conspirators intended that the false statement be presented directly to the United States, he must demonstrate that they agreed that the claim would have a material effect on the government's decision to pay the claim, Judge Alito said.

The Supreme Court vacated the 6th Circuit's decision and remanded the case for further proceedings.

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